Continued high food price inflation coupled with reduced economic activity on a global scale are hitting the dairy sector, with falling sales in most parts of the world.

According to a new report from Rabobank, various companies in western Europe, Australia, Brazil and China are experiencing weaker-than-expected sales in 2023, mostly in terms of volume.

It points to the fact that households in many regions are under financial constraints and as a result food purchasing is being affected.

However, in contrast to most areas, demand for dairy products in the US remains strong.

While global milk production is still rising, it is losing momentum, and Rabobank believes this slower production increase could help stabilise global market prices.

Most of the growth in dairy is is attributed to EU and US, while Oceania and South America saw lower output in the first half of 2023.

Production in the third quarter of the year, could however be affected by dry weather in South America and parts of Europe.

Senior analyst at Rabobank, Andrés Padilla, said: “Our current outlook is for lower production in the EU and US, with limited growth elsewhere, which is likely to support global dairy prices in Q3 and into 2024,”

He added that lower input costs are providing some relief to farm-level margins. Optimism about Brazil’s second corn crop, combined with large Russian grain exports, renewal of the Black Sea Grain Initiative, a good upcoming EU harvest, and accelerated US corn planting are continuing to drive prices lower, which will provide dairy farmers with some relief as farmgate milk prices decline globally.

However, the report pointed out that dairy farm margins remain under pressure in China, despite falling feed prices, while in the US, lower milk prices have outpaced the decline in feed costs, putting farmers’ margins under additional pressure.

To date, China’s dairy demand recovery has not offset strong domestic milk production growth.

Farm expansions and continued gains in milk yields are driving domestic milk production higher, and supply may take longer than previously forecast to respond to weakening milk prices and comparatively higher feed costs.

The Chinese also reduced their imports in the first quarter of 2023 which added further pressure to already weaker global prices.

“With no immediate signal of a swift recovery in consumer demand, Chinese traders may remain cautious about returning to the market. A return may largely be motivated by competitive international prices and efforts to build reserves,” the report concluded.